United Kingdom Inflation April 2017

United Kingdom: Inflation climbs again in April

May 16, 2017

Consumer prices in the United Kingdom rose 0.5% in April compared to the prior month, up from March’s 0.4% increase. April’s uptick was driven by higher prices for transport, health and clothing and footwear.

Inflation surged from 2.3% in March to 2.7% in April, the highest rate since July 2013 and slightly overshooting analysts’ expectations, while annual average inflation increased from 1.1% in March to 1.3% in April. Despite veering further away from the Bank of England’s 2.0% target, a large part of the uptick recorded in April can be attributed to one-off factors, such as higher air fares due to a late Easter and a rise in vehicle excise duty. However, this isn’t to say inflation won’t continue to rear its head in the coming months, with the depreciation of sterling observed in the second half of last year yet to fully feed through to prices.

Coupled with recent figures showing sluggish nominal wage growth, high inflation is squeezing households and is beginning to have a knock-on effect on private consumption, as evidenced by the recent slowdown in retail sales growth.

The Bank of England sees inflation reaching 2.8% in Q4 2017 and 2.4% in Q4 2018. FocusEconomics Consensus Forecast panelists expect inflation to average 2.6% in 2017, which is up 0.1 percentage points from last month’s forecast. For 2018, the panel forecasts that inflation will average 2.5%.

Author:Oliver Reynolds, Economist

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